How Will Inflation Affect Your Retirement?

When calculating which of your current expenses you will have in retirement, keep in mind that they are in today's dollars. To get a better idea of what they will be when you are ready to retire, you should adjust them for inflation. Unfortunately, no one knows the future rate of inflation, so you are on your own to make a guess. The table below shows how much to multiply your expenses by for different rates of inflation.

For example, if you have 15 years until retirement and expect a 5 percent inflation rate, you should multiply your current expenses by the inflation table factor of 2.08.

A current need of $5,000 per year translates to a requirement of $10,400 per year 15 years later—just to stay even ($5,000 x 2.08)!

Inflation has been under 4 percent over the last few years. However, we have experienced periods of double-digit inflation (in the 1980s). Once you have adjusted your expenses for inflation, you should add them up. That is how much cash inflow you need in retirement.

This article provided by The Educated Investor and powered by CalcXML.
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